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Short Sale Fraud – Dont get Caught in This Scam

As the market is evolving, we are seeing a growing trend in sales that being the Short Sale or as some refer to the “The Long Painful Sale”.  All kidding aside, the new trend in the distressed market is the Short Sale and as with most things when they become popular, out come the scam artist trying to make a quick buck the dishonest way.

The way the Short Sale scam works is the real estate agent will list the home at a low price often with a buyer already to go or another friend/ agent who already has the buyer (flipper).  Typically this offer is lower than the market value and they will get the property tied up quickly so no other offers can come in on the property.  They will make the property look as bad as they can to get the BPO or appraisal low.  Once they get the offer accepted they will clean the place up and flip it getting another offer at market vale and close it within days even hours in some cases and making a good profit and never having to do anything to it.  Does not sound bad right?  Well here is the problem.  In a short sale the bank is absorbing the difference between what is owed and what the property is worth.  Most of the time they sell at Market Value.   Market Value is what a buyer is willing to pay for the property, however if the property is never given a chance to sell on the open market and is artificially driven down because the banks think that the offer they got is the best and highest they are going to get, than Market Value is artificially driven down because often times there is a buyer out there willing to pay more than the the offer the agent  himself or his counterpart have submitted to the bank prior to the home hitting the open market.  Many buyers who are looking for properties get frustrated because they submit offers that often are higher than the final sales price  the home sells fo to another buyer (flipper).

Frank Fogel was frustrated in his search for a nice home in Modesto, Calif., where short sales make up a significant percentage of transactions. He made a number of offers on homes over two years, only to see them sold for less than what he offered.

He offered $356,000 on one home and got no response, but the home sold for $345,000. He offered $333,000 for another home, which sold for $290,000.

“You don’t know how much it irritates someone like me who is willing to buy a house for what it’s worth, but can’t,” he told The Modesto Bee. “Guys like me can’t get ahead doing it the honest way. It’s not a level playing field.”

The key to avoiding this is to work with a reputable agent who has experience in doing short sales.  They often time will recognize the red flags in a short sale scam and be able to alert you or call the other agent up and set them straight.  Below is a good article below detailing how the scam works and what Freddie Mac is doing about it.


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